By Gernot Heller

Canadian auto parts group Magna and Belgium-based financial investor RHJ are locked in a takeover battle over Opel. GM intends to relinquish control of the German car company in return for state support.

"We made significant progress," Deputy Economics Minister Jochen Homann said after GM and government officials met with representatives from the two main bidders. "All the partners -- so GM, Magna and RHJ -- confirmed that they saw themselves able to see eye to eye by the end of the week."

GM, which holds 35 percent of Opel, and Germany, which will provide state aid, must agree on a buyer, but so far they have disagreed. Germany prefers the Magna offer, while GM has indicated it likes RHJ's bid.

However, Homann said GM had not shown any preference for either of the bidders.

GM had been expected to recommend one of the bidders to its new board of directors at a meeting on Monday. But it said on Tuesday it merely brought the board up to speed on the talks without making a recommendation, as negotiations were dragging on.

GM said in a statement late on Tuesday that progress had been made throughout the day "clarifying issues from the best and final offers received two weeks ago."

"GM hopes to conclude its evaluation and make a recommendation to the Opel Trust Board shortly," the company said.

NEED TO IMPROVE BIDS

German Economy Minister Karl-Theodor zu Guttenberg said in a weekend newspaper interview that both suitors had to improve their bids to win government backing.

Magna wants to expand Opel's full-scale car assembly business and forecasts high growth rates, particularly in Russia, home of its bidding partner, state-controlled bank Sberbank.

RHJ aims to shrink production to return Opel to profit and may be open to selling it back to GM at a later date.

Less than two months before an election in Germany, Chancellor Angela Merkel's government -- and the four federal states that are home to Opel plants -- fear RHJ will cut more jobs than Magna.

Thomas Schaefer, a member of the German government's Opel Task Force and representative of the four states, said they were still pushing for a deal with Magna and "had made significant progress to this end."

Germany has said it aims to have a deal closed in September. Homann confirmed that the government still expected a deal to be concluded by autumn.

Homann said the government had challenged Magna and RHJ over its request for them to invest more capital in the Opel takeover, and both companies said they would reconsider this.

(Additional Reporting by Angelika Gruber; Writing by Maria Sheahan, Madeline Chambers and Sarah Marsh; Editing by Rupert Winchester, Greg Mahlich and John Wallace)